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Working Paper

  • 01.07.2003

    Farm Efficiency and Productivity Growth in Ukrainian Agriculture

    (Code:20)

    Transition from a planned to a market-oriented economy has proved to be a painstaking process for almost all Central and Eastern European countries. Nevertheless, it is perceived that market orientation brings about improved efficiency and favors efficient resource allocation through more developed and flexible price mechanisms. The first ten years of transition in Ukrainian agriculture were marked by a persistent decline in output. Agricultural output in 2000 accounted only for 53% of 1990 level and it is only since 2000 that it has begun to recover. A natural question arises: why did market mechanisms fail to produce the expected improvements and to which factors can the observed patterns of development in Ukrainian agriculture be attributed?

    Generally, a decline in output can be explained by a reduction in input usage, a fall in pure technical efficiency (i.e. by less efficient utilization of resources), a decline in scale efficiency (i.e. a deviation from scale efficient output level) and a technology regress. All these factors contribute to changes in production levels and their effects may be quite opposite; that is, production increases due to technological progress and may be dwarfed by a simultaneous deterioration of technical efficiency. To which factors an increase (or decrease) in output can be attributed is an empirical question. It is the goal of this paper to analyze the effect of each of the factors on the productivity change in Ukrainian agriculture over the 1996-2000 period.

    Efficiency analysis is important for several reasons. First, at the aggregate level the decomposition of productivity changes may be valuable for policymakers, since it reveals potential sources of productivity growth and, possibly, output expansion. Furthermore, efficiency analysis at the farm level may be helpful in determining optimal farm size, the optimal resource mix and the minimum amounts of inputs required to produce a given output.

    This paper attempts to estimate technical and allocative efficiencies at the level of individual agricultural enterprises and to analyze the linkages between an enterprise’s efficiency and its ownership pattern. An effort is also made to determine optimal inputs ratios and optimal amounts of each input required to produce a unit of output. At the aggregate level, we review the trends in Ukrainian agriculture over a five-year period and provide a comprehensive analysis of the changes in productivity, technical efficiency and technological change.

    The paper is organized as follows. Section 2 describes the methodology employed. Section 3 contains a discussion of the data used. The rest of the study actually consists of two parts that can be considered as two separate analyses. The first part covers the performance of agricultural enterprises at the regional level from 1996 through 2000 and, thus, aims at explaining changes in Ukrainian agriculture as a whole. This analysis is presented in Section 4. The second part of the study focuses on the analysis of particular agricultural enterprises in 5 central regions of Ukraine, which is presented in Section 5. The concluding section discusses implications and policy recommendations.

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